Compensation Tactics to Retain Mission-Critical Talent

With unemployment low and highly-skilled professionals in high demand, it’s time to reevaluate your compensation strategy to help retain top performers. Otherwise it’s way too easy to lose key people to the competition.

Simplicity and clarity are key to pay satisfaction. Your compensation strategy should be pithy enough to serve as an elevator pitch to retain top performers. Mark Stocker, president of recruiter SAN Inc., says there are two keys to making this happen. First, create a simple compensation plan that doesn't change.

Second, allocate a much greater proportion of your compensation budget to people who have great success and long tenure. Sales commissions at SAN start at 25 percent and reach up to 50 percent, with equity kicking in along the way. “It's key to be clear about compensation from the start of an employee’s relationship with the company,” says Stocker.

Speak to values that Millennials respect.Millennials now dominate the workplace, and they typically have compensation expectations that your company would be wise to meet. “Millennials expect fairness, communication, and advancement,” says Mykkah Herner, a compensation analyst at PayScale. “That's why companies are showing employees market pay data. Otherwise, if they don’t, higher performers especially are a flight risk.”

More frequent, smaller rewards can appeal to many workers. In our ever-changing economy, workers respond to financial rewards that come early and often. As annual performance appraisals give up round to more frequent evaluations, compensation may take a parallel track.

“A lot of companies are not good at giving people good raises at the beginning of their careers,” says J.D. Conway, a recruiter at software vendor BambooHR. “We give employees money in small pieces as part of employee recognition, which they interpret as better growth and progression.”

Consider alternatives to ranking performance. What if – to limit attrition in a tight labor economy – you need to reward employee performance that’s in the top 50 percent, not just the top 5 percent? It’s in this context that many employers are deemphasizing forced rankings and coming up with new ways for employees to distinguish themselves.

Some companies are asking employees to “show me that you deserve this,” says Herner. “They're adjusting compensation plans generationally.” Other companies are rewarding groups of employees for their success as a project team.

Know that your competitors may well raise their offers. If you believe a key employee has unrealistic expectations about how big an offer she might get from a rival company, think again.

“A couple of years ago, we would say, ‘Hey, this candidate has to be offered more money,’ and companies would balk,” says Joe Giacomin, a recruiter with the automotive practice of Angott Search Group. “Now companies don’t even question it” if they’re determined to attract top talent.

You may need to revise your thinking about counteroffers. If you’ve written off an employee’s presentation of an outside offer as a poison pill to your relationship, you may need a rewrite to retain top performers. “We’re seeing a big increase in counteroffers,” says Giacomin.

“In the past, it was a real stigma to accept a counteroffer, and companies would say, ‘Pack up your gear and have a nice life.’ But these days, the employer doesn’t seem to be holding it against the person.”

Consider giving really big rewards to really big achievers. Giving your top performers a big chunk of the dollars they bring in may be painful – but it’s less painful than losing them and their networks. Giacomin says that in the OEM automotive parts industry, most bonuses are in the 10 to 20 percent range, but occasionally they’re 30, 40 even 50 percent.

But beware the perils of super rewards for superstars. “Some organizations pull aside large resources for their top one to five percent of performers, and give them more pay, bigger bonuses, and better mentoring, and professional development opportunities,” says Dow Scott, professor of human resources at Loyola University Chicago’s Quinlan School of Business.

“But the other 95 or 99 percent can figure out who’s getting the lavish attention, and they don’t like being left out.”

Restricted stock is getting more respect than stock options. Equity is always attractive, and your top people may bolt without it. But wise employees won’t accept equity in your company in just any form.

“The attraction of stock options fell off in the 2007-2009 recessions,” says Scott. “Companies have had to move more toward giving restricted stock, so now employees have something even if it loses values.”